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Rivals' flexibility stretches Fitness First

Jessica Gardner

Smaller gyms with more flexible arrangements have lured members away from Fitness First. Photo: Peter Rae

Fitness First has put new club openings on hold and will grow by pulling back customers who turned their back on the high end gym chain for cheaper, more flexible networks, following a restructure that shut 19 underperforming clubs.

The company's global chief executive Andy Cosslett said Fitness First has a lot of work to do to restore its customer relationships. The chain had fallen foul of its "flag planting" pursuit of growth, which saw it opening new locations in areas that were often uneconomic, at the same time as it was ignoring member feedback for greater flexibility. Many unhappy customers simply left, he said.

"They fell out of love with us and in many respects they had reason to," Mr Cosslett said. "We became more interested in the next joiner rather than the people who were currently members."

While Fitness First was relying on its well known brand and its market leading position to lock in customers on expensive, long term contracts, the gym industry diversified around it.

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Boutique clubs that focus on one activity, like pilates or hot yoga, were popping up. But more devastating to the business of full service clubs, was the arrival of 24-hour, budget gym chains like Jetts Fitness and Anytime Fitness.

The small format gyms expanded aggressively. Their low cost of entry meant they could open up in areas where it did not make financial sense for larger gyms to be - the first Anytime Fitness gym opened in the NSW country town of Gunnedah.

But the upstart competitors have also eaten into Fitness First's core business in central city locations. Their less rigid contracts and 24 hour access suits hospitality workers, lawyers working late on a deal and insomniacs alike.

Mr Cosslett said Fitness First will look at extending trading hours in some locations, but the chain would not go to unsupervised training like its cheaper rivals.

"We don't buy into the current trend which is all about having boxes of kit and just wishing people the best of luck when you show them in there," he said.

Fitness First's unsustainable growth was not confined to Australia. Mr Cosslett joined the company in June 2012 after hedge funds lead by Oaktree Capital Management saved the British company with a £550 million debt for equity swap, leaving private equity owners BC Partners with a minority stake. BC Partners bought Fitness First in 2005 for €1.2 billion and failed to float the business in 2011.

Australian revenue has fallen by about 15 per cent after the 2012 restructuring, which closed 19 clubs and cut 120 jobs. But the country still contributes about 25 per cent of the group's £500 million annual revenue, Mr Cosslett said. The group also culled underperforming sites in the UK after the buy-out, but also opened 15 new outlets in Asia.

The company will spend $100 million on its remaining 79 Australian clubs over three years. It has spent $7 million on a brand new club in Flinders St, Melbourne, but there are no immediate plans for other new openings. In a crucial step to show they listened to feedback, customers will also be able to pay on a per visit basis, in addition to standard contracts.

Mr Cosslett previously spent six years in Melbourne as the head of the Asia Pacific operations of Cadbury Schweppes. Before Fitness First he ran Intercontinental Hotels Group, which includes the Crowne Plaza and Holiday Inn brands. These two roles will inform his quest to improve both brand and service at the company, which has more than 335 clubs worldwide.

Earlier this year the company unveiled a new logo and Mr Cosslett wants Fitness First members to experience more of a "concierge" experience at their gyms. At first this will be as simple as removing the turnstiles at the front desk. But it will evolve into an investment in smartphone apps that will help members to track their progress and complete training regimes at times when they can't get to the gym. "If we're prepared to give some of our knowledge and expertise away that's another way that we can actually demonstrate our change," Mr Coslett said.